Gibsland Bank and Trust Company v. The Security Title Guarantee Corporation of Baltimore

Summary

The Louisiana Second Circuit reviews a dispute over title insurance coverage for a mortgage that lacked priority because of an earlier lien. The court affirms the finding that the insurer breached the policy and acted arbitrarily and capriciously, but reverses awards for property-tax penalties and interest and for attorney fees related to bankruptcy and sheriff-sale proceedings. The court also addresses mitigation, policy exclusions, statutory penalties, and the reasonableness of attorney fees.

Holdings

1. Security breached the policy by failing to pay the covered risk that Gibsland Bank's mortgage lacked priority over the Bankers' Insurance Company mortgage.
2. Gibsland Bank could not recover the $33,256.71 in property-tax penalties and interest because it failed to make reasonable efforts to mitigate its losses.
3. The $13,113.12 in attorney fees arising from the borrower's bankruptcy proceedings and the suit to quiet title was not recoverable because the policy excluded attorney fees and expenses arising from matters attaching or created after the policy date.
4. Security acted arbitrarily, capriciously, and without probable cause by failing to pay the undisputed amount necessary to cure the priority defect within the statutory period.
5. The district court did not abuse its discretion in qualifying the attorney-fee expert, but it abused its discretion by awarding $140,174.78; a reasonable penalty attorney fee was $40,000.
6. Gibsland Bank was not entitled to $258,500 for alleged diminished value of the collateral because the evidence did not establish that the later appraisal and sheriff-sale price reflected a loss attributable to the 2017-2018 claim period.
7. The district court did not abuse its discretion by imposing the lower penalty under La. R.S. 22:1892 rather than the higher penalty under former La. R.S. 22:1973.

Questions Presented

1. Whether Security breached the title insurance policy by failing to cure the lack of priority of Gibsland Bank's insured mortgage.
2. Whether Gibsland Bank's failure to mitigate its losses required reversal of the award for property-tax penalties and interest.
3. Whether attorney fees incurred in connection with the borrower's bankruptcy proceedings and sheriff sale were recoverable under the title insurance policy.
4. Whether Security's failure to pay or make a settlement offer within the statutory periods was arbitrary, capricious, or without probable cause.
5. Whether the district court abused its discretion by awarding $140,174.78 in penalty attorney fees.
6. Whether Gibsland Bank was entitled to damages for the alleged diminished value of the collateral.
7. Whether the district court abused its discretion by imposing the lower penalty under La. R.S. 22:1892 rather than the higher penalty under former La. R.S. 22:1973.

Disposition

reversed_and_remanded